Monthly Benefits Update - November 2014
December 5, 2014
Health and Welfare Plans
U.S. Supreme Court Grants Review of ACA Case Involving Premium Subsidies Offered Through Federally Facilitated Exchanges
The Supreme Court granted review in King v. Burwell, a Fourth Circuit case that upheld an IRS interpretation of statutory language in the Affordable Care Act that involves whether premium subsidies to purchase coverage should be available on federally facilitated ACA exchanges. Challengers argue that the IRS interpreted the ACA’s premium subsidy language too broadly; the IRS’s interpretation of the statute would limit the subsidy scheme only to exchanges established by a state. Many states have not established their own exchanges, which makes this a very significant issue.
Millions of individuals will no longer be eligible for premium subsidies to purchase exchange coverage if the Supreme Court overturns the Fourth Circuit’s decision, as more than 30 states have some form of federal exchange. Further, for employers, the ACA’s employer mandate/pay-or-play penalties are triggered only when an employee purchases coverage on an exchange and receives a premium subsidy. Depending on the outcome of the appeal, employers in states with federal exchanges (such as Illinois) may no longer need to be concerned about triggering employer mandate penalties for failing to offer coverage that meets the employer mandate’s various requirements. A decision is expected in 2015.
Agencies Say Plans Not Providing Hospitalization, Physician Services Likely Do Not Satisfy ACA Minimum Value Requirements
The Departments of Labor, Health and Human Services (HHS), and Treasury (collectively, the “Agencies”) issued a notice stating that they believe that group health plans that do not cover in-patient hospitalization services and physician services (also known as “skinny” plans) do not comply with the ACA employer mandate’s “minimum value” requirement.
Whether a plan provides minimum value for ACA purposes can be determined through use of the online MV calculator. However, the Agencies expressed concern as to whether the continuance tables underlying the MV calculator produce valid actuarial results for unconventional plan designs that exclude substantial coverage for in-patient hospitalization services. For instance, the standard population and other underlying assumptions used in developing the MV calculator are based on self-insured employer-sponsored plans, which have typically included hospitalization coverage. The Agencies also stated that designing a plan to exclude hospitalization coverage could substantially affect a plan’s covered population by discouraging enrollment by employees who have, or think they might develop, significant health issues.
The Agencies intend to propose regulations that address skinny plans’ compliance with the ACA’s minimum value requirement. Employers will not be able to rely solely on the MV calculator, the Agencies said, to determine whether a skinny plan satisfies the minimum value requirement after such regulations have been finalized. For employers that have already entered into a binding agreement to adopt a skinny plan or that have started enrolling participants into such a plan on or before November 4, 2014, the Agencies stated that they anticipate that the regulations will not apply to such employers’ skinny plans before the end of any plan year that begins before March 1, 2015.
The notice also provides that employers offering skinny plans must correct any disclosures made to employees that stated or implied that receiving an offer of coverage from a skinny plan will prevent employees from obtaining a premium tax credit for marketplace-based insurance coverage.
Agencies Clarify that Cash Payments to Employees for the Purchase of Marketplace Coverage or as an Incentive for Not Enrolling in the Employer’s Own Plan are Incompatible with ACA and Other Requirements
Under a recently issued FAQ by the Departments of Treasury, Labor, and HHS, an employer cannot offer employees pre-tax or post-tax cash payments to purchase an individual health policy on an ACA exchange. The Departments explained that any such cash payment to an individual employee to purchase coverage on an exchange would constitute a group health plan. The guidance clarifies that these group health plans do not meet the ACA’s market reform requirements (such as the prohibition on lifetime and annual limits, the requirement to provide preventive care at no cost-sharing, etc.), so an employer offering such an arrangement will trigger penalties and excise taxes under the ACA.
Maybe more importantly, the FAQ also clarified that an employer’s offer of an additional cash payment to employees with high risk conditions or a history of large medical claims as an incentive to not enroll in the employer’s group health plan will generally violate HIPAA’s nondiscrimination rules. Specifically, the Departments made it clear that they consider these cash-or-coverage arrangements—which effectively require high risk employees to forego the cash payment in order to enroll in the employer’s coverage—to discriminate on the basis of a health factor in violation of HIPAA’s nondiscrimination rules. Before this guidance, it was generally thought that these types of arrangements were acceptable as “benign” discrimination in favor of the employee. We expect that there will be more formal guidance issued on this topic at some point. In the meantime, employers should be extremely careful in structuring any cash payment that is intended to influence an employee to select alternative health care coverage.
ACA Transitional Reinsurance Program Reporting Deadline Extended
CMS extended the reporting deadline to December 5, 2014 for health insurance issuers and certain self-insured group health plans to report covered life counts for purposes of the transitional reinsurance program. This program requires health insurance issuers and self-insured plans to contribute to a fund that will assist with stabilizing premiums for issuers in the individual insurance market as these issuers manage the influx of new participants to their plans in the initial years of ACA implementation. Each entity’s contribution amount is based on the amount of covered lives in the plan.
2015 Flexible Spending Account Contribution Limit Increased
The IRS released its 2015 contribution limits for Health Flexible Spending Accounts (FSAs) and certain other benefits. For 2015, the annual limit is increased by $50 to $2,550. Employers are permitted, but not required, to increase their health FSA plan’s contribution limit up to this amount.
IRS Revises Model Safe Harbor Section 402(f) Explanations for Rollover Distributions
In recent guidance, the IRS issued revised safe harbor Internal Revenue Code section 402(f) notices that plan administrators may use to provide information to recipients of eligible rollover distributions from certain tax-qualified plans. The new notices reflect recent Treasury rulemaking including the allocation of pre-tax and after-tax amounts of rollovers as well as in-plan Roth 401(k) conversions. A plan that uses the model explanations set forth in the guidance will be deemed to have satisfied its 402(f) notice requirement. Plans that must comply with the 402(f) notice requirements include 401(k) plans, defined benefit plans, profit sharing plans, 403(b) plans, governmental 457(b) plans and other similar tax-qualified plans.
Sixth Circuit Upholds Forum Selection Clause in ERISA Plan
The Sixth Circuit Court of Appeals recently upheld a provision in an ERISA plan document in Smith v. Aegon Companies Pension Plan, No. 13-5492 (6th Cir. Oct. 14, 2014) that restricts the venue in which a plan participant may bring a claim. In Smith, the Sixth Circuit upheld a venue selection provision which limited participant litigation to a federal court where the plan was located, in this case in Cedar Rapids, Iowa.
The Department of Labor argued in its amicus brief that these forum choice provisions in plan documents are incompatible with ERISA, which is intended to permit broad access to the federal courts. Ultimately, the Sixth Circuit issued an employer-friendly ruling by reasoning that these forum choice provisions promote administrative uniformity that would be undermined if plans were required to defend legal actions in different states and different federal courts. The Sixth Circuit’s decision is consistent with the prevailing view in the federal district courts which, subject to certain limitations, permit these provisions in plan documents. Notably, however, some federal district courts, including one in the Seventh Circuit, have not clearly held that forum selection clauses comply with ERISA.
Pension Reform Legislation Ruled Unconstitutional; Illinois Supreme Court Appeal Expected
As discussed in a prior alert, the Circuit Court of Sangamon County ruled that the pension reform measures enacted in January 2014 violate the Illinois Constitution’s Pension Protection Clause. The legislation was designed to shore up the finances of four of the State’s underfunded pension systems. The decision sets the stage for an appeal to the Illinois Supreme Court.